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Bank of America Chief Technical Strategist Anticipates 10-12% Pullback In Nasdaq

Tyler Durden's picture




 

Mary Ann Bartels, BofA's technical research analyst looks at the NDX large spec positions reported in last week's COT report, and does not like what she sees: "Large speculators aggressively bought NDX futures last week to a net long of $3.2bn notional from $0.8bn notional previously. Readings are in a crowded long. Between mid Feb and early April of 2010, HFs accumulated NDX aggressively into a crowded long position and S&P 500 went up 7.9% for this time period. The market corrected 10.2% from the peak crowded readings in the NDX in later April and May. We are estimating a market pullback of 10%-12%."

Of course, while this may make sense from a purely technical perspective, the fact that cross asset correlations are at a record, will mean that either the NASDAQ 100 is ridiculous overpriced relative to the Russell and the S&P, or that speculators have merely been chasing the highest beta, and a flush has yet to be confirmed based on sell off trigger levels in the SPX and the SUT.

On the S&P speculative position:

S&P 500 Large Spec positions: Large speculators partially covered their shorts in S&P 500 futures to a net short of approximately $4.1bn notional from about $8.0bn notional previously. Readings are neutral.

And on Russell:

Russell 2000 Large Spec positions Large speculators slightly covered their shorts in the Russell 2000 futures last week to roughly $2.7bn notional from $3.1bn notional previously. Readings are neutral.

Bartels summary observations on various asset flows is as follows:

  • Equities. Large specs continued to cover the S&P 500 and Russell 2000 index futures but remained net short in both; they bought NASDAQ 100 into crowded long.
  • Agricultures. Large specs bought Soybean but sold Wheat. Corn and Soybean remain in a crowded long.
  • Metals. Large specs bought all metals last week except for platinum. Copper is in a crowded long.
  • Energy. HFs bought Crude oil and marginally covered their shorts in natural gas.
    Natural Gas positions remain in a crowded short.
  • Forex. HFs sold US Dollar last week; they bought Euro and Yen. JPY is on the edge of becoming a crowded long.
  • Interest Rates. Large specs bought 2-year Treasuries; nevertheless they sold 10-year and 30-year Treasuries. This implies expectation of a steeper yield curve.

And here is how BofA estimates Hedge Fund exposure in the market:

Examining HF positioning by major strategies

Equity Long/Short funds market exposure we estimate was slightly above 18% net long, still below the historical average range (35-40%). Market Neutral funds held stead their equity exposure at just above 50% long / 50% short benchmark. Our models indicate Macro HFs continued to cover their shorts in US equities and commodities, while selling EM and EAFE long exposures.

Alas, while we respect Ms. Bartels, we have to vigorously disagree with the assumption that shorts have covered into this rally, as the last update on NYSE short interest indicates.

 

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Mon, 10/04/2010 - 13:27 | 624027 bankonzhongguo
bankonzhongguo's picture

Robots effing robots.

Mon, 10/04/2010 - 13:32 | 624041 Sudden Debt
Sudden Debt's picture

YEAH!! LISTEN TO BAC!!

And after that, let's read why Citi proposes to!

Mon, 10/04/2010 - 13:37 | 624053 dark pools of soros
dark pools of soros's picture

will NFLX hit $300 first??  should we all triple leverage now?

Mon, 10/04/2010 - 13:40 | 624061 Hansel
Hansel's picture

CRM is where it's at. 200x P/E. Special deal just for you.

Mon, 10/04/2010 - 13:42 | 624064 Leo Kolivakis
Leo Kolivakis's picture

Yawn, keep buying the dips!

Mon, 10/04/2010 - 13:44 | 624072 Deep
Deep's picture

You do realize the market has not done anything in a year right leo.

Yawn, you are getting so old

 

 

Mon, 10/04/2010 - 13:57 | 624098 Greater Fool
Greater Fool's picture

S&P 10/1/09 close 1029.85

S&P 10/1/10 close 1146.24

Doing nothing?

Mon, 10/04/2010 - 14:28 | 624149 barkingbill
barkingbill's picture

right and if you bought aug. 1? how about may. 1?

Mon, 10/04/2010 - 18:17 | 624607 Minion
Minion's picture

If you were good enough to catch the timing in equities, you could have caught it in PM's, Wheat, Corn, etc. etc. and demolished that table scrap of a return that couldn't even outrun inflation.  :D

Mon, 10/04/2010 - 13:45 | 624074 Sudden Debt
Sudden Debt's picture

even if you have to print the money to buy them.

Mon, 10/04/2010 - 14:36 | 624168 SheepDog-One
SheepDog-One's picture

Leo in his fevered mind thinks the stocks are just the bees knees, when in fact stocks are stagnant for over a decade and even the biggest bulltards around has to admit the markets are a bubble and are only being kept afloat by the most insane economic governance in history. Keep buying the dips Leo you dipshit. 

Mon, 10/04/2010 - 13:49 | 624086 TradingJoe
TradingJoe's picture

Leo, Paaalleeeaaasssseeee!

Mon, 10/04/2010 - 13:52 | 624088 Ripped Chunk
Ripped Chunk's picture

Off the reservation. Better reel her in. 

Mon, 10/04/2010 - 13:55 | 624094 oklaboy
oklaboy's picture

on my way out right now to buy, buy, buy

Mon, 10/04/2010 - 14:03 | 624109 Spalding_Smailes
Spalding_Smailes's picture

Apple down $17.00 in 4 1/2 trading days. Google down $26, Microsoft down 5% ...

Mon, 10/04/2010 - 14:05 | 624114 Gimp
Gimp's picture

The Fed will keeping pumping dollars into the market at all costs too stupid to realize that they are diluting the dollars purchasing power and causing commodity prices to skyrocket.

Mon, 10/04/2010 - 17:13 | 624504 NotApplicable
NotApplicable's picture

Well, if they're gonna monetize the debt, why not equities?

Mon, 10/04/2010 - 14:34 | 624160 barkingbill
barkingbill's picture

don't worry because america is the greatest nation on earth so just keep being patriotic and hang the flag everywhere and pray and eventually everything will be good. that's what mommy said. 

Mon, 10/04/2010 - 14:35 | 624163 HarryWanger
HarryWanger's picture

Well that prediction will get shot down quickly if Apple announces they sold a gazillion gadgets in the next couple of weeks or so. On the other hand, if Apple closes below 278 today it looks like it'll continue lower technically to meet up with the 50dma soon.

Mon, 10/04/2010 - 14:43 | 624177 DonS
DonS's picture

Melt up today??? in advance of POMO tomorrow?

Mon, 10/04/2010 - 14:43 | 624179 carbonmutant
carbonmutant's picture

On the Agri side BHP is catching some love from Conference Board of Canada.

http://blogs.wsj.com/deals/2010/10/04/report-bhp-bid-preferential-to-sin...

Mon, 10/04/2010 - 14:48 | 624191 Fortunes Favor
Fortunes Favor's picture

She makes some interesting points. Add to them the weakness of the financial space vs the market and a case for booking recent gains seem solid:

Stock Market Strategy: Financial Sector Flashes Warning / Reduce Risk, Increase Diligence @ http://rosenthalcapital.com/blog/2010/09/stock-market-strategy-financial-sector-flashes-warning-reduce-riskincrease-diligence/

Mon, 10/04/2010 - 14:49 | 624195 carbonmutant
carbonmutant's picture

There are 2.5 Million calls on Jan 11 Citigroup. Sounds like investors are willing to bet .06 on QE2...

Mon, 10/04/2010 - 16:59 | 624473 tony bonn
tony bonn's picture

well i think boa has been looking into its own financial mess....jim willie reports that all of the gold sales hoopla in july by imf (international monetary fraud) was to bail out boa from bankruptcy....it suffered a near death experience that month....my guess is that the bank's days are numbered until it is merged with wachovia...

Mon, 10/04/2010 - 19:21 | 624673 prophet
prophet's picture

Saw a report today on the "smart money" Commercial Hedgers being at an all time record short NDX to the tune of $7.9B, a 200 percent increase from the week prior report.

Not good.  NDX now seven down days in a row.  Turn around Tuesday again or waterfall down?  ISM services out tomorrow too. 

-profd

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